S Travels has been promised a contract to run a tourist car on a 20 km. long route for a multinational firm. He buys a car costing - 4,50,000. The…

CA Intermediate · Cost and Management Accounting · MTP · May 2025
S Travels has been promised a contract to run a tourist car on a 20 km. long route for a multinational firm. He buys a car costing - 4,50,000. The annual cost of insurance and taxes are - 7,500 and - 1,800 respectively. He has to pay - 2,500 per month for a garage where he keeps the car when it is not in use. The annual repair costs are estimated at 12,000. The car is estimated to have a life of 10 years at the end of which the scrap value is likely to be - 50,000. He hires a driver who is to be paid - 3,000 per month plus 10% of the takings as commission. Other incidental expenses are estimated at 2,000 per month. Petrol and oil will cost 220 per 100 kms. The car will make 4 round trips each day. Assuming that a profit of 15% on takings is desired and that the car will be on the road for 25 days on an average per month, WHAT should he charge per round-trip?

Suggested Answer and Working Notes:

Statement of Operating cost. Particulars Per Annum (₹) Per Month (₹) Standing charges: Depreciation [(4,50,000- 50,000)/10] 40,000 3,333.33 Insurance 7,500 625.00 Taxes 1,800 150.00 Garage (2,500 × 12) 30,000 2,500.00 Annual repairs 12,000 1,000.00 Driver's Salary ( 3,000× 12) 36,000 3,000.00 Incidental expenses (2,000 × 12) 24,000 2,000.00 1,51,300 12,608.33 Variable expenses: Petrol and Oil 8,800.00 [ 4,000* kms x 220 / 100 ] Total Cost (without commission) 21,408.33 * 20 km. × 2 × 4 round trips × 25 days = 4,000 km. Let X be the total takings per month Driver's Commission = 10% of X = X / 10 Profit = 15% of X = 15 X / 100 = 3 X / 20 Total takings per month = Total cost + Driver's Commission + Profit X = 21,408.33 + X/10 + 3X/20 X - X/10 - 3X/20 = 21,408.33 (20X - 2X - 3X) / 20 = 21,408.33 15 X / 20 = 21,408.33 X = (₹ 21,408.33 × 20) / 15 X = 28,544.44 Total number of round trips per month: 25 days × 4 round trips per day = 100 trips Hence the charge per round trip = 28,544.44 / 100 = 285.44

Topics: Service Costing

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